Istanbul has a vital role to play in the economy and politics of Turkey. It’s the gateway to the presidency for Recep Tayyip Erdogan and constitutes a third of the country’s economy. After two decades, Erdogan failed to control the financial capital. The controversial president has planned another vote to elect the mayor.
It’s just one of the many issues that made people and businesses lose faith in the country. After a credit-fuelled boom caused bust, many are switching to the dollar. Foreign exchange deposits and funds swell to a record high of $182bn this month.
Lira, the currency of Turkey, has fallen about 37 percent since the start of 2018, plunging the economy into recession. The central bank has ceased implementing capital controls on the way governments limit the flow of money in and out of Turkey. During the boom period, the country delivered mostly through construction and property. Later, various corporations took money in dollars and are finding it difficult to pay back $200bn in loans.
In addition, unemployment has soared to a decade-high of 14.7 percent and inflation to 19.5 percent. The Turkish government has pledged a series of financial reforms to bring the economy back. However, currently, many consumers are swedging to pay for imported goods.
What went wrong with the economy?
In 2008, the GDP per capita went above $8,000 and it raised up to $12,000. But today, it’s below the 2008 numbers. The chosen growth model is the reason behind it. The economy cannot boom with just skyscrapers built in Ankara, Istanbul or Izmir that are considered as prestige projects.
Turkey will never capitulate prestige projects. Infrastructure projects such as canal, railway, and fast train projects should continue with a foreign subsidiary as these are the essentials of an economy. But foreign money received has been allocated to a construction sector that looks after 750 other sub-sectors. This created a boom in the economy in the beginning. However, towards the end, cash flow was in local currency but debt in foreign exchange. Hence, Turkey is stuck now.
To fix the Turkish economy, the country should follow token economy policies and build up the country’s interest accordingly. Moreover, the system has paralysed the decision-making process in the economy. If the authority is monopolised, a single person manages all. That’s the case with Turkey.
Turkey should address the key trigger of the problem that is a new presidential system, which is unique. Institutions are now paralysed. Turkey must build a new system by introducing a rule-based agenda in line with the separation of powers, universal law, checks, and balances.